1. Field of Invention
The present invention relates generally to the field of insurance. More specifically, the present invention is related to insurance cost calculations based on real-time payroll data.
2. Discussion of Prior Art
Conventional methods for determining costs of workers compensation insurance involve gathering relevant historical data from a personal interview with the applicant for the insurance and by referencing the applicant's prior insurance records that are maintained by a governmental agency, such as a Bureau of Workers Compensation Insurance, if such records exist. Such data results in a classification of the applicant to a broad actuarial class for which insurance rates are assigned based upon the empirical experience of the insurer. Many factors are relevant to such classification in a particular actuarial class, such as type of employee, hours worked, location of work, exposure classification, etc, and the cost is based upon projected payroll and type of occupations expected within the insured's business over the next year.
The current system of insurance creates groupings of risks (actuarial classes) based on the following types of classifications:                Number of Employees        Payroll        Actuarial Classification Codes        State of coverage        Experience Mod        Included Officers Coverage        Types of previous losses        Liability limits        State deductibles        Credits        
The classifications, such as payroll, are further broken into actuarial classes, to develop a unique risk insurance cost based on the specific combination of actuarial classes for a particular risk. The example shown in FIG. 1 would produce a unique insurance cost.
A change to any of this information would result in a different premium being charged, if the change resulted in a different actuarial class for that variable. For instance, a change in the risk's payroll from 58 thousand to 57 thousand may or may not result in a different actuarial class, however, a change in an employee's classification from 0815 to 0953 may result in a different premium because of the change in actuarial class.
A principal problem with such conventional insurance determination systems is that much of the data gathered from the applicant in the interview is not verifiable or is used as a snapshot of the insured's exposures only at that moment in time, and even existing public records contain only minimal information, much of which has little relevance towards an assessment of the likelihood of a claim subsequently occurring and obtaining premium based upon actual exposures versus a retrospective analysis at policy termination. In other words, current rating systems are primarily based on past realized losses, projected conditions of the risk's payroll, classes, size and employee population, which are projected over the life of the policy, usually one year. This data is usually not updated until the end of the policy term, wherein an insurance company exercises its right to audit the business to determine more accurately the number of employees, their actual payroll, and other factors. None of the information obtained through conventional systems necessarily reliably predicts the manner or safety of future employer activities. Accordingly, the limited amount of accumulated time sensitive, relevant data, and its minimal evidential value towards computation of a fair cost of insurance has generated a long-felt need for an improved system for more reliably and accurately accumulating data having a highly relevant evidential value towards predicting the actual payroll and classification changes of the risk. In addition, the changes in premium that result from these predictions is charged or credited directly to the risk to better facilitate cash flow management techniques.
Many types of workers compensation data collection systems have heretofore been suggested for purposes of maintaining an accurate record of certain elements of a risk's operation. Some are suggested for identifying the cause of a loss, others are for more accurately assessing the efficiency of classifying the employee's of the risk. Such systems disclose a variety of conventional techniques for collecting the risk's operational data elements in a variety of data collection systems.
The various forms and types of risk company information acquisition systems that have heretofore been suggested and employed have met with varying degrees of success for their express limited purposes. All possess substantial defects, such that they have only limited economical and practical value for a system intended to provide an enhanced acquisition, recording and uploading of system of data which would be both comprehensive and reliable in predicting an accurate and adequate cost of insurance for the risk. Since the type of company operating information acquired and recorded in prior art systems was generally never intended to be used for determining an updated cost of workers compensation insurance, the data elements that were monitored and recorded therein were not directly related to predetermined safety standards or the determining of an actuarial class for the employees. There is also the problem of collecting and subsequently compiling the relevant data for an accurate determination of an actuarial profile and an appropriate insurance cost therefore.
Current payroll control and operating systems comprise electronic data reporting systems readily adaptable for modification to obtain the desired types of information relevant to determination of the cost of insurance. Payroll tracking systems have been suggested which use uploads to back-end audit systems for providing information describing a risk's changes to the original insurance application. When such information is combined with additional information in an expert system, a risk's premium is ascertainable. Mere back-end audit information, though, will not provide data particularly relevant to the actuarial class of operation unless the data is combined with other relevant data in an expert system which is capable of assessing whether the change is relevant to the policy's terms or not, and, in addition, it is not real-time, which does not afford the carrier the opportunity to prevent potential losses, such as applying Loss Control services.
Typically, workers compensation premiums are derived from information obtained directly from the risk at the inception of the policy's term, and then, again through a payroll audit conducted at the end of a policy's term. This causes, in some cases, a materially significant difference in premium costs, if the conditions of the policy's exposure, changes considerably from policy inception to audit. There is a need in the industry to “flatten” out this change in premium by monitoring a risk's payroll and manage the risk (which is accomplished through a payroll-processing monitoring system) electronically, and then, adjusting the policy's premium reflective of the actual, current risk and spreading the difference in cost over the life of the policy to more accurately reflect the real exposure of the risk.
Whatever the precise merits, features, and advantages of the above mentioned prior art techniques, none of them achieves or fulfills the purposes of the present invention.